Hospital plans are a hotbed of abuse

Abuse by clients and medical practitioners puts hospital cash plans in the regulator’s spotlight, writes Neesa Moodley-Isaacs

Hefty copayments from your medical aid scheme or a lack of a medical scheme may lead you to consider a hospital cash plan. However, as these plans, offered by life insurers, become increasingly popular, abuse is rife.

A FinMark Trust study released last year showed there were between 1 million and 1.5 million hospital cash plans in place, covering about 2.4 million South Africans, with an estimated 50 000 new policies sold each month.

While providing some level of health insurance, the office of the long-term insurance ombudsman says the problem is getting worse as the industry gains market share.

Deputy ombudsman Jennifer Preiss says the abuse of hospital cash plans appears to be spreading from KwaZulu-Natal to other provinces, such as Eastern Cape, and also to other hospital groups.

The Association for Savings and Investment SA is currently investigating the problem.

In his yearly report released earlier this year, the former long-term insurance ombudsman, Brian Galgut, highlighted the abuse of hospital cash plans.

Galgut commented that abuse of hospital plans had initially been noted in 2011 and had continued to occur, with more diverse claim conditions and a growth in the number of medical practitioners involved.

» How the abuse occurs
The claimant submits a claim for hospitalisation for a period of five to 10 days – this for a condition which normally requires no period of hospitalisation, or at most a day or two.

The medical scheme covers some or all of the costs for the illness, but the claimant then claims from his hospital cash plan for the fixed daily sum, usually between R500 and R1 500.

The insurers tend to pay for part of the period and advise the claimant that to have the rest paid, he would need justification from a medical practitioner. It would appear, therefore, that medical practitioners are also involved in the fraud.

“It would seem from the extent of the problem that these claims are part of an organised scam.

“Although insurers have advised the office they are investigating the problem, at this stage it has not had any effect and the problem is not diminishing but has carried on into 2013,” the report of the long-term insurer states.

Impact of the abuse
Galgut warned that the impact of these excessive claims on law-abiding clients could be an increase in premiums for hospital cash plans.
Other consequences include:

1 The payment by insurers of more in claims than they would have assumed when the policy was designed, as some of the claim payments are not justified;

2 Insurers are also incurring costs for the investigation of these claims and for the case fees that are charged by the office when the claimant complains to it;

3 The negative effect on medical schemes that pay out on these excessive claims;

4 The impact of the extended periods of unwarranted sick leave on productivity; and

5 The general negative effect on society of this type of dishonest behaviour by claimants and medical practitioners.

Peter Dempsey, deputy chief executive of the Association for Savings and Investment SA, says if the abuse cannot be curbed, life insurers may be forced to implement tough measures to ensure the financial viability of hospital cash plans.

These could include:
» Raising premiums;
» Introducing standard cancellation clauses; and
» Stopping hospital cash plans completely.

A case study of hospital cash plan fraud

Mokaedi Dilotsotlhe, general manager for alternative distribution at Old Mutual, says the insurer has experienced abuse of its hospital cash plans.

“Members are being hospitalised for excessive hospital stays and for conditions that could reasonably be treated outside of hospital. And most of the abuse is noted from KwaZulu-Natal,” he says.

Dilotsotlhe adds that in a case study noted by Old Mutual, a patient was hospitalised for 10 days for pneumonia. However, on receipt of the clinical records, the insurer noted the following:

» The patient’s temperature was normal;
» Only basic nursing care was given; and
» The patient’s chest X-rays were normal.

These records are not indicative of a person suffering from pneumonia.

Dilotsotlhe says Old Mutual would decline or limit the number of days that are paid in accordance with policy terms and conditions.

“In the absence of the industry actually investigating the doctors who are admitting the patients, it cannot be proven as fraud,” he says.

“We do report these doctors to an industry forum and also use the information from other insurers or reinsurers to help with the assessment of our claims. We also report all matters to our group forensics.”

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